The COVID-19 pandemic has accelerated digital adoption and a flight from cash in the Middle East. A joint study by Dubai Economy and Visa published in November 2020 revealed that 49 percent of the UAE consumers have increased their online shopping since the pandemic began and that 61 percent are opting for cards or digital wallets instead of paying by cash on delivery.
Another study by McKinsey found that digital point-of-sale transactions in Saudi Arabia doubled in the year leading up to January 2021.
Even before the pandemic, digital payments were growing. According to Mckinsey and Company, the number of consumer digital payments transactions in the UAE grew at an annual rate of more than 9 percent between 2014 and 2019, compared with Europe’s average yearly growth of 4 to 5 percent.
More starkly, Saudi Arabia observed an astronomical increase in card payments: over 70 percent between February 2019 and January 2020.
These impressive growth rates have been boosted further by the pandemic, as consumers are also becoming increasingly comfortable with digital payments. For instance,
That the world without cash is around the corner is evident in the fast growth of digital payments with the major economies in the Middle East leading this shift. The region is witnessing strong growth in cards and card-based wallets.
In Saudi Arabia, for example, POS contactless-card transactions have grown by 10 percent per month since the start of the pandemic, and payments via pass-through card-based wallets have increased by 18 percent per month.
In time, payment methods relying on Quick Response (QR) are also expected to catch on in the Middle East market, but only in countries where the necessary infrastructure for it is well developed.
“The GCC is undergoing an evident shift toward digital payments, which is being driven by consumer demand, government strategies, and innovation in the fintech and electronic payments industries,” Peter George, Managing Director, Amazon Payment Services told TRENDS. “Customers in the GCC have a strong appetite for digital payments, recognizing the convenience, security, and speed they provide.”
In response to this consumer demand, he said, the businesses in the GCC are increasingly making new payment methods available to their customers, including options like digital wallets, Buy Now Pay Later, payment links, and QR codes.
The Retail sector is the primary beneficiary
Electronic payments enable consumers to make contactless transactions, which is part of why their usage has surged in the pandemic and post-pandemic periods.
More than 100 markets saw contactless as a share of total in-person transactions climb by at least 50 percent between the first quarter of 2020 and the same period in 2021.
Offering digital payment options has become integral to attracting and retaining customers. According to George, the retail sector was one of the main sectors where digital payment adoption is particularly strong, and hospitality and F&B. mortar retailers and malls have been enthusiastic adopters of electronic payments.
He continued: “Digital payments will continue to penetrate new sectors in the GCC in the coming years, such as real estate, healthcare, events, and exhibitions, and more enabling businesses in these industries to increase the convenience, speed, and security of their payment process for a better customer experience.”
Electronic payments and digital transformation
Electronic payments offer speed, efficiency, convenience, and security. Payments can be made instantly with a few clicks without having to go to a bank or store. This is especially useful when making cross-border transactions, a significant area for the GCC, where it can be difficult or impossible to pay in person.
Furthermore, digital payments are also easily traceable and can be secured with innovations such as SSL and encryption, assuring customers that the information they provide is safe.
On the other hand, digital transformation and electronic payments are closely linked with each other. As more businesses in the GCC move and grow their operations online, it will become necessary to provide ways for their customers to purchase their products and services digitally.
In parallel, digital transformation drives innovation in electronic payment solutions, as increased adoption of cloud, artificial intelligence, and blockchain technologies unlocks the new speed, accessibility, and data security capabilities.
“Several fintech start-ups are innovating in the digital payments sphere to eliminate customer pain points and make cashless payments available to more people,” George claimed. “Thus, we launched the Amazon Fintech Lab in the DIFC Innovation Hub in the UAE earlier this year to provide a forum for discussions on digital payments and the future of the fintech industry, and we are looking forward to continuing to explore new ways in which we can help businesses on their digital transformation journey.”
In the future, emerging payment technologies such as digital currencies and wallets, wearables, biometrics, contactless, and QR codes are expected to grow in popularity as consumers get more comfortable with and understand them, reducing the use of their currency. Eighty-nine percent of consumers in the region now have more payment options than they had a year ago. In addition, the growing popularity of new payment systems may push merchants to broaden their checkout alternatives.